Anadarko Scores With Western Gas IPO (APC, WES, EP, EPB)

In June 2006, Anadarko Petroleum (NYSE:APC) bought both Western Gas Resources and Kerr-McGee for a total of more than $23 billion. Last night, Anadarko announced that it had priced an IPO of 18.75 million shares for Western Gas Partners, LP (NYSE: WES) at $16.50 per common unit. APC also granted underwriters an overallotment of 2.82 million shares. Book-runners include UBS, Citi, Credit Suisse, and Morgan Stanley, with a host of other institutions getting into the act as well.  Here were details from our coverage of the filing.

The new company’s assets are a natural gas treatment plant in Texas, and gas gathering and pipeline systems in the Rocky Mountains and several Midwestern states. In 2007, these assets produced $116 million in revenue and $24 million in earnings.

If the overallotment is exercised, the limited partners will own about 40% of Western Gas Partners, LP, and Anadarko will own the rest, including the general partner interest. According to the filing, Anadarko receives the 2% general partner interest plus incentive distributions that could rise to 50% of available cash after the distributions reach $0.45/common unit. WES will return virtually all the proceeds (about $350 million) to Anadarko, which will use the money to repay a portion of Anadarko’s recent $2.2 billion borrowing from, surprise, the underwriters.

Anadarko first filed with the SEC for this IPO in April 2007, and it’s taken this long to get to the IPO. The company reported good results for the first quarter of 2008, and, according to Forbes, Moody’s recently raised its outlook to ‘stable’ from ‘negative’ on APC’s ‘Baa3’ senior unsecured long-term debt. Including the $2.2 billion, APC’s total long-term debt and liabilities were about $26.6 billion at the end of the first quarter.

Spinning off midstream assets is nothing new for E&P companies. El Paso (NYSE: EP) hived off El Paso Pipeline Partners L.P. (NYSE: EPB) in November 2007 for about $540 million and EPB’s stock price has risen about 11% since then. Anadarko and Western Gas Partners, LP should be happy with similar performance — not great, but good enough to keep the debt rating companies happy.

Oddly enough, Carl Icahn was a huge owner of Anadarko as of the last filing dates.

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Paul Ausick
May 9, 2008